Zim Integrated Shipping Services (Zim)


SWOT Analysis

Strengths

  • Israel's main shipping line.

  • Part of the much larger Israel Corp.

  • Diversified shipping route portfolio.

Weaknesses

  • Did not weather the downturn well and had to be bailed out by its parent company Israel Corp, and has needed further financial aid in 2012.

  • Is struggling to service its debts, and has been forced to streamline its workforce.

  • The firm was forced to delay the delivery of some of its orders because of the downturn.

  • Israel Corp's owners, the Ofer brothers, were found to be dealing with Iran in breach of US sanctions.

Opportunities

  • The company, via partnerships, is expanding its presence on the big-money trade routes.

  • Privatisation plans for Israel's ports could see greater volumes of traffic, which the company is well placed to benefit from.

Threats

  • Container lines were unable to push up rates in 2012 and will continue to struggle to do so in 2013.

  • Overcapacity still threatens the sector.

Company Overview

Israel's Zim Integrated Shipping Services is part of Israel Corp. The company operates in the box shipping sector, catering for the trade needs of Israel, as well as on major container routes such as Asia-Europe and the transpacific. The company can trace its beginnings back to 1945.

Strategy

Zim continues to cater for Israel's trade needs but is also expanding its presence in the global shipping market. In global terms, the company holds a market share of 1.9% (making it the 17th-largest container line in the world), just above its nearest rival Pacific International Line (PIL) with 1.8%.

Routes

Zim has traditionally built its route network around calls at either Haifa or Ashdod, thereby catering to the trade needs of Israel. The company has, however, also expanded its presence globally, including participation on the 'big money routes.' The company operates six Asia-Europe services and three transpacific routes. The company also has considerable exposure to the Mediterranean trade and intra-Latin American routes.

Fleet

Zim's fleet includes both ocean box ships and feeder vessels. The company has a fleet of mega vessels on order, comprising nine 12,600 twenty-foot equivalent unit (TEU) ships, whose delivery has been pushed back to 2014 and 2015. In total, the company's orderbook stands at 13 vessels, with a total capacity of 148,168 TEUs, 46.0% of the line's current operating fleet.

Zim operates a balanced fleet: roughly half (52.6%) of the 322,279 TEU capacity that it has in operation is chartered. Zim implements a strategy of chartering in smaller tonnage, while owning larger vessels. The company's owned vessel capacity of 152,818 TEUs is split between 32 vessels, while the company's chartered-in capacity stands at 169,461 TEUs, spilt between 52 vessels.

Financial Data

Zim Likely To Need New Debt Settlement

Zim is likely to require a new debt settlement soon, following a more than US$1bn in losses since 2008 and a debt settlement in 2009, reported Globes in January. Zim's operations have been affected by higher oil prices, the global slowdown and an oversupply of ships. However, Zim registered a US$17mn profit in Q312 as the carrier cut its operating costs and increased shipping rates by 10%. The company's shipping revenue slipped 4% year-on-year in Q312 owing to global economic climate. Meanwhile, Zim had US$182mn at end-September 2012 and is scheduled to make down payments of US$230mn over the coming year to shipyards that are building ships it ordered. The company also has to pay US$300mn in interest and principal payments to banks over the next 12 months.

Q312

Zim has announced its Q312 results, showing a vast improvement on previous quarters as it reports a profitable three months. The company has attributed its improvement to seasonal factors, but also the operating efficiencies it has made. BMI notes that the company is being hampered from making all the efficiency moves it desires, however, by the veto the Israeli government - a major shareholder - has put on the splitting of the domestic and international arms of the business.

Like all container-shipping companies, Zim has been suffering from repeated financial losses in recent years. The blow to the global shipping trade by the financial crisis of 2008 and 2009 (which saw volumes shipped by containers drop for the first time since the advent of box shipping in the 1950s) resulted in an excess of capacity compared to demand. This has barely ameliorated in the subsequent years, as lines have continued to place new orders at the yards. The excess supply of tonnage has seen rates plummet, as evidenced by the poor performance of the Shanghai Containerised Freight Index since its inception in mid-2011 ( see BMI 's weekly Rates Roundup for regular analysis of the container shipping indices).

However, despite the adverse operating conditions, Zim has managed to post a positive earnings release for the third quarter of 2012, its best results since Q310. Net profit to shareholders for the three-month period ended September 30 2012 was US$16mn, as compared to a net loss of US$66mn in Q311. This strong result was built on revenue growth of 9.0%, from US$976mn to US$1,064mn, and an increase in rates per TEU of 10.2% from US$1,310 to US$1,444.

We highlight, however, that the improvement in earnings came despite a drop in volumes transported. In Q311, Zim carried 644,760 TEUs, compared with 617,000 TEUs in the quarter just ended. According to Zim, the improvement in earnings came about as a result of efficiencies made within the company, and that the excess tonnage and volatile oil prices will continue to pose challenges.

BMI notes that the company is seeking to be free to pursue further efficiencies through the division of its domestic and international container shipping services. Zim believes that the split would give the carrier more freedom to pursue potential mergers on the global stage. However, a veto by the Israeli government and union opposition is currently preventing the measure. According to Zim: 'Delay may affect the company's competitiveness and complicate the creation of joint ventures common among industry global players, which has good potential to improve cost structures, cost reduction, and operation optimisation.'

Consolidation between container shipping companies is a theme BMI has highlighted previously ( see our online service, 'Trends To Watch In 2013: Consolidation And Protectionism', October 24). Through pooling resources companies can make more efficient use of their assets, and major shipping lines such as COSCON and CSCL have already implemented such a strategy. If Zim is not free to pursue what it believes would ultimately benefit its business most in a time of continued pressure on rates, it may not be able to continue to report positive earnings such as it has for the latest quarter.

Q112

Zim has announced a net loss of US$163mn for Q112. This compares with a net loss of US$151mn in Q411. Zim also reported a loss for earnings before interest, taxes, depreciation and amortisation of US$69mn. The company attributed the losses to a combination of higher fuel prices and lower freight rates. Zim did, however, transport 3% more containers in Q112 compared with the previous year, a total of 570,000 TEUs.

2011

Zim has reported a US$96mn loss for Q411. The company made a US$397mn loss for the whole year, compared with a US$54mn profit in 2010. The Q411 loss compared with a US$151mn profit in Q410. The decline in income was attributed to a combination of increased competition and a worsening environment in the container shipping market. BMI expected that Q112 results would show a further loss as this has been the trend seen by all shipping lines which have thus far released their income statements. The financial situation for Zim became so bad that the company required a US$100mn 'safety belt' cash injection from parent company Israel Corp in the second quarter.

Latest Activity

Zim Urges Government To Split Company

Zim has urged the government to accelerate the implementation of a decision on dividing the company into two independent foreign and domestic entities. The Israeli government, which is against the move, is the owner of a golden share in the company and holds a veto. Israeli trade unions are also believed to be against the move. Zim said a delay in the decision would hit the company's competitiveness and would cause difficulties in the formation of joint ventures.

This article is tagged to:
Sector: Freight Transport, Shipping
Geography: Israel

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